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Education and a spirit of innovation will secure our trade future

Opinion piece written by CEO Andrew Mackenzie, published today in The Weekend Australian Newspaper.

I was pleased to recently speak to the graduating class of Curtin University’s School of Engineering. I was there to share some of the lessons I’ve learned with students as they start a new chapter of their lives.

I expect many really wanted to know if there was a future waiting for them in Australia’s resources industry. My answer was unequivocally ‘yes’.

These graduates enrolled during the super cycle of the last decade, the likes of which they might never see again in their life time. When an industry struggles to keep pace with booming demand from a market like China, the price of iron ore, which sat at around $20 a tonne for 30 years, rises precipitously to over $150 a tonne.

Very few nations are as fortunate as Australia – we have some of the largest and best resource basins on the doorstep of the fastest growing economies in the world.

But no country has the right to be the default supplier of choice of any resource. We have to work for it, and compete in the open market against countries that also want to capture the benefits of global trade for their people.

This is what we are seeing play out in the iron ore market – free markets, transparent pricing and global competition – where the growth in supply eventually comes into balance with the growth in demand.

Last year BHP Billiton celebrated its shipment of one billion tonnes of iron ore to China – which gave us pause to reflect on the national building role Australia has helped play and the immense investment we and others have made to grow the industry in the Pilbara.

Over the past decade, BHP Billiton made a US$25 billion capital investment in infrastructure and equipment to our Western Australian Iron Ore operations.

From this solid foundation, we are now focused squarely on safely growing production from our world-class resource footprint and existing infrastructure – which means continuous improvement and productivity.

So what about claims that mining companies should restrict supply in an effort to sustain higher prices? I was speaking to engineering students, not economics students, but I hope they too would know how futile this would be as well as counterproductive to Australia’s long-term future.

The iron ore reality is that we sell a global traded commodity in a free market. While Australia is undoubtedly a big player in the iron ore market, we are not the only player.

For example, BHP Billiton has doubled its production over the last decade, yet our share of the global seaborne iron ore market is virtually unchanged – as we grow and improve, so do our competitors.

The only certain effect of stalling production will be to reduce Australian exports, and Australia’s share of the iron ore market. When we step back, competitors step up – as it should be, the best way to improve is to play against a stronger opponent.

And so it is with free trade.

My role leading the B20 Trade Taskforce reinforced that free trade, perhaps more than any other single measure, lifts ‘all boats’ and helps generate sustainable global, economic growth – and jobs. When I worked in R&D, there was a saying: ‘when you open the laboratory door, more ideas come in than go out’.

We won’t be able to compete and seize the opportunities that await our engineering graduates who will hopefully be among the industrial leaders of the future if we don’t open the door.

As a champion of free trade, BHP Billiton will continue to advocate for open markets and trade in all our commodities, not just in iron ore.

For example, we have seen how the development of the US shale industry has transformed the global oil market and BHP Billiton has played a role in this transformation. We believe we have a responsibility to support transparent, market-based pricing in LNG and other commodities like Potash in the future. Commodity prices based on the real supply and demand fundamentals will be critical to ensure adequate supply of ingredients like Potash which will support increased food production as populations grow and standards of living improve, particularly in China and India.

So with these movements in commodity prices, and against the backdrop of the current economic challenges facing Australia, what does this mean for the resources industry and our future employees? 

We have to set our own course and run our operations in a way that creates lasting value for our shareholders and communities.

We do that through: sustainable employment with more than 123,000 employees and contractors working for us around the world; sustainable mining practices integrating health, safety, environmental, social and economic factors into all of our decision making; sustainable tax and royalties which last year totalled more than US$8 billion in Australia alone – making BHP Billiton the largest tax payer in the country; and sustainable capital management with a strong balance sheet and progressive dividends for our shareholders.

We have to focus on what we can control – not the weather, not foreign regulations – our own operations, our productivity, our ingenuity and our safety.

In iron ore, that means standardising our equipment, increasing its availability, getting more trains to port and more ships through the harbour. These are some examples of what productivity means at BHP Billiton.

And we have to do it together – neither government, nor private enterprise – can do it alone.  We must foster the skills and spirit of innovation to underpin Australia’s position as a world leader in resources, and provide the opportunities that our best and brightest need to apply their skills in Australia.

Like any valuable long-term asset, we must be willing to invest in education if we are to benefit from it. As part of BHP Billiton’s voluntary community contributions, which last financial year totalled more than $US240 million, we form partnerships with schools, universities and research organisations, such as the CSIRO.

These support programs are aimed at securing a pipeline of sharp and innovative minds, raising the profile of science, technology, engineering and mathematics (STEM) subjects and career paths and helping to readdress equality of opportunity to access education more broadly.

This focus on improving access to education and outcomes will be essential for our industry and our nation. We rely on scientists and engineers to develop and apply technology to the challenges we face – to make our operations safer, more efficient, and more sustainable.

In my Curtin speech, I acknowledged how much had changed since they enrolled, including global economic structural adjustments, rapid advances in technology and shifts in geopolitical influence.

And this change and uncertainty only reinforces how important it is for the industry to have the regulatory certainty and political stability needed for business and investment confidence for decisions which span many decades and many governments. I believe Australia’s leaders recognise the importance of these objectives.

So while commodity cycles may come and go, increased productivity and innovation throughout our supply chain will boost our long-term competitiveness and deliver permanent gains to the Australian economy year in, year out.

And it is free markets for commodities and the capital to develop them that will ensure the enduring lowest cost supply of the resources the world needs to grow, delivered safely for our people and with respect for the environment. It is free markets that will drive higher growth and lessen geopolitical tensions.

There is no doubt that today Australia is facing a range of economic and policy challenges - but we should never forget the unique gifts this country has been endowed with - democratic and liberal values, abundant resources and proximity to growth markets. Let’s make the most of our opportunity.